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What The Vonage?

Vonage sure spends a lot of money on the internet and on TV. In fact, it is almost impossible not to visit a website without seeing a banner ad for Vonage or watching TV and not hearing the "do-do, do-do-do" music in the background. However, how is that advertising machine going?

The banner ads themselves are typically boring static orange buttons placed on a page with a click-thru link over to a landing page. My guess, however, it is time for them to try a new more targeted strategy and leave the carpet bombing approach behind.

Based on their own financial results filed with the SEC in anticipation of their IPO, their marketing metrics are going in the wrong direction. Examining the key marketing metrics for the 9 months ending on September 30th for 2004 and 2005 here's what I see:

Marketing $$$: increased from $31.3 million to $176.3 million; that's a 463% increase year over year

Cost per account: increased from $137.7 to $213.8; that's a 55% increase

Gross Subs increased from 227K to 825K; that's a 263% increase, but their net subscribers as a % of gross went down from 83.7% to 81.3%

Average monthly churn stayed consistent at 2.11%, but that's surprisingly a similar number to overall LD churn if my memory serves me correctly

Now, maybe you are thinking, well the numbers don't look bad but take into consideration that this is a growing industry and a lot of customers are out there. The first 1.5 million that they are celebrating can't be just all of the tech people; remember isn't this a revolution?

The carpet bombing approach has to be slowing down for them. As I showed a few days ago, they are the number 1 buyer of online media and have been for some time. Of course, I don't know what their online metrics are and the retained knowledge from AT&T would not be applicable. However, using the reported numbers published on ClickZ and then factoring down by over-reporting of numbers using my Harrisdirect buy as the sample, I get to an online spend of about $95 million with an average of 7.5 billion monthly impressions.

Now, here's where the fun begins. Since the buy is mostly static placements of which I am VERY familiar with, let's assume they are receiving on average a click rate of 0.01% with a conversion into a gross sale of 0.75%. That translates into a cost per online sale of around $135, which seems very high and as I said earlier that number is probably going up.

What should Vonage do? How about more targeted buys in specific channels and filtering down the media buy to better performing sites. I'm sure they are doing something of that already, but they need to optimize even deeper. Also, they should do more offer testing and testing of multiple landing pages. Finally, I also like the TV ads and I think they would work well in their online buys - bring the music online. It also wouldn't hurt to make the TV and Online ads look similar from a branding perspective. An online creative facelift couldn't hurt at all and with all of that media, there certainly is enough to test with.

Of other interest is that their CMO, Dean Harris, recently left and joined Kayak.com , as their head of marketing. Looks like someone is following the playbook of marketing numbers going in the wrong direction, get rid of the CMO. If that's the case, that's a real shame because I'm sure the architect of BrandWeeks' 2005 Marketer of The Year could have turned this around. What the Vonage?

PardonMyFrench,

Eric

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